In this case study, Apple Corporation had to deal with the need to enforce international labor laws in its supply chain. Companies are under pressure to reduce costs while also abiding by international labor standards.
What do you see as the key issues of this case? How do you think Apple should handle the labor practices of its suppliers?
Do you think consumers in the United States would continue to buy Apple products if they were aware of the labor law violations of Apple's suppliers? Explain.
Would this knowledge of this type of activity affect your personal buying habits for a specific product?
Outsourcing “Cool”
The Apple iPhone 5 is an undeniable success, as were the prior versions. A “game changer,” the iPhone has taken the lowly simple cell phone to a whole new level by offering a wide range of features (digital music player, Internet surfing, PDA, e-mail) in an elegant touch-screen device. More that six years since it was introduced, the product continues to incorporate a number of innovative designs that require integration of sophisticated products from companies all over the world including Samsung and Qualcomm chips, SanDisk flash memory, and Sony batteries.
Apple did not invent the smartphone but improved the product by creating innovative features in the iPhone and changing the market perception. However, Apple does not assemble the iPhone because the challenges of handling the thousands of sensors, chips, and other parts is labor-intensive as well as technologically challenging. Instead, they use foreign manufacturers, mostly in Asia, because of their ability to handle complex technology manufacturing and lower labor costs.
Apple chose Hon Hai Precision Industry in Taiwan to manufacture the iPhone 5. Operating under the trade name Foxconn, the company is one of the largest technology companies in the world with sales exceeding $40 billion. Hon Hai Precision Industry has been criticized for using sweatshop labor conditions in China to increase productivity. This has resulted in widely publicized stories about suicides due to the working conditions at Foxconn facilities. Hon Hai has sued Chinese reporters who file negative reports about the company's labor practices.
Apple's response has been to send teams to China to investigate various allegations and has reported that, while there were some abuses, overall the company was a good employer. Hon Hai has not experienced significant problems as a result of questions about its labor policies; however, the company has kept a very low profile and that is the way Apple prefers it. Negative publicity about events such as the working conditions in China can potentially damage Apple's carefully developed brand image in the same way that similar practices by its outsourced Asian shoe manufacturers have plagued Nike's reputation for decades.
Apple's brand image as a maker of cool, innovative products appeals to a broad range of consumers. Part of that image is based on the perception that Apple is a responsible corporation that is environmentally concerned and labor friendly.